Protecting Your Dealership with Property Policies
For those of us operating businesses on the East coast or Gulf coast states, it’s officially Hurricane Season. In fact, we’ve already had an early Tropical Storm and enough rain in areas to sufficiently soak the ground.
So, before the succession of summer storms begins to roll our way, take time to review your Property Policy. Look at Limits, Deductibles, Coinsurance clauses and any applicable Endorsements. Even if you are not in a state affected by seasonal storms, a semi-annual review of your Property Policy should be an essential function for your Risk Management Team.
Let’s take this line by line.
When insurance people talk about Real Property, they mean Buildings. Make sure your Buildings are properly valued. We recommend seeking out a qualified Dealership Contractor to confirm that your facility can be rebuilt for the limits insured. Look to the carriers to make sure they have a Replacement Cost provision in the policy. You may find that some insurers go ‘’beyond’’ and provide margins that will afford a little ‘’more’’ coverage should your limit not prove adequate to rebuild.
Next, review the Deductible structure, both the Wind and AOP (All Other Perils) Deductibles. In some areas, the market is changing, so it might be the last chance to secure a lower wind percentage deductible.
Look at the coinsurance clauses. This is the most misunderstood concept in insurance. Simply put, coinsurance requires the customer to insure property to a percentage of the actual value. If the insurance limit carried falls below that level, there is a penalty. Example…$ 1M in Property values with a 90% Coinsurance requires the Insured to carry coverage at $ 900K or above. If the Insured decides to carry less than 90% of the actual value…the coinsurance penalty will apply.
Be sure you understand coinsurance and insure your property to value.
Negotiate with the carriers and have this clause ‘’waived’’ if possible.
Review all exclusions in the Property policy and understand what is not covered. Flood and Earthquake are obvious examples, but there may be more. Coverage is almost always available somewhere…find the limits you need and ask about pricing and deductibles.
Replacing appurtenant structures such as Signs, Fences, Light posts and Flagpoles can be expensive. Some carriers include these as a part of the Building, others require scheduling or separate limits. Review these items and make sure they are properly covered.
The coverage limit for your Business Personal Property (aka Contents) should include Parts Inventory, P & A Equipment, Machinery and Shop Equipment, Furniture and Fixtures, and Computer Equipment. Again, review the Limits, Deductibles and Coinsurance clauses to ensure there are no surprises or misunderstandings at the time of loss. Make sure the coverage provides Replacement Cost valuation and that Systems Breakdown coverage is included.
Items like Accounts Receivable, Valuable Papers and Computer Software are often provided on an Inland Marine form.
All are important coverages.
Make sure your Risk Management Team assesses these needs and the policy has adequate limits.
Finally, make sure your Business Interruption coverage is written properly. Most carriers working with Dealerships do not provide coverage for income derived from Auto Sales. This includes F & I income. Their reasoning is simple…if they do not provide coverage for the vehicles on the Property form, they will not provide Loss of Income arising from the vehicle sales. Most carriers look at Service Department Gross Sales and Parts profits as the basis for Business Interruption coverage. This may or may not be a negotiable point with the carriers…but, certainly one worth discussing.
Understand how long your BI coverage will last…3 months, 6 months, etc. Also, make sure Extra Expense is included in your limit or additional coverage is provided. This is where you will find funds for rental trailers, generators and other items to keep you running until the building is rebuilt.
Request coverage for Off Premise Business Interruption as well. This is coverage for your loss of income when there is no damage to your facility…but, also no power to operate computers, equipment and machinery. Simply put, the power is out and you cannot operate.
Off Premise BI can be difficult to secure and often expensive. However, many carriers will provide sublimits if pushed. Find out how much coverage you will need and negotiate with the insurers.
Business Interruption one of the most difficult claims to adjust. It requires work from internal or outside accountants and is never the ‘’smoothest’’ claim. Understanding your coverage and how it works is essential.
Property coverage. Understand what you have and adjust it to what you need before the loss occurs.
Watch for our next info blast…Coverage We Never Thought Were needed!